Warring moguls

Has Silvio Berlusconi upset his chum, Rupert Murdoch?

WHEN Mediaset, a media firm owned by Silvio Berlusconi, Italy's prime minister, bought the rights to broadcast the matches of the country's top football teams on digital terrestrial television last summer, analysts interpreted it as a setback for Rupert Murdoch's Sky Italia. But what most alarmed Sky Italia was that it had not even known that the football rights were up for sale. It only found out when Mediaset announced its deal. When Mr Murdoch heard, according to someone close to the mogul, he was furious.

Mediaset craftily took advantage of a ruling by the European Commission when Sky Italia was formed from the merger of Telepiu and Stream in 2003. This said that Sky Italia could not have exclusive access to football across all the means of delivering TV. Thanks to Mediaset's move, Italians can for the first time this weekend use pre-paid cards to watch Inter Milan play Chievo Verona live on digital terrestrial TV—with more top league “Serie A” matches to follow. They will pay only euro3 ($3.90) a game. That is likely to reduce the appeal of Sky Italia's local football offering, which costs €47 each month, or €15 per game for pay-per-view. Mediaset's cards are selling fast, with Italian newspapers this week reporting shortages.

Another annoyance for Sky Italia is the fact that the Italian government is subsidising digital terrestrial boxes by some €70 each in an effort to move the whole country off analogue TV and on to digital by the end of 2006. That in turn benefits Mediaset at the expense of Sky Italia, and helps it to expand its business model beyond free-to-air into pay TV, Mr Murdoch's territory.

Sky Italia's management is now trying to learn lessons from Mediaset's coup. Its own people “were not as integrated into the society as they might have been”, says one executive at Mr Murdoch's News Corporation. Tom Mockridge, Sky Italia's boss, is learning Italian. Sky Italia will now try to claw back some fraction of the money it handed over to Italy's football clubs in 2002. But some people wonder whether Mr Murdoch has met his match in Mr Berlusconi and Mediaset, which has a dominant position in Italian television. In Italy—unlike in other countries, where Mr Murdoch usually wields market power—“he's the small guy and he's from out of town,” observes one media banker in London.

Perhaps because they do not want to provoke Mr Berlusconi, executives at News Corporation deny reports of Mr Murdoch's displeasure. They point to his long, close friendship with the prime minister. Mr Berlusconi even bought from Mr Murdoch the Morning Glory, the boat on which Mr Murdoch had married his third wife, Wendy Deng. They protest (too much?) that Mr Murdoch is relaxed about the current situation.

The perception among Italian television executives is that Sky Italia has reached a peak with its current 3m subscribers, but there may still be room to grow. Half of the people who buy one of its premium packages opt for movies rather than football; for them, Mediaset's pay-per-view cards are not a substitute. In any case, the two firms are mostly targeting different markets for football, News Corporation argues, since the cards are so cheap and do not offer, for instance, any foreign football championships.

If Sky Italia can reach Mr Murdoch's goal of adding 400,000 subscribers by the end of June, it will start making money this year. Thereafter, because Sky Italia is not spending too much to acquire subscribers and is mostly managing to keep them, the firm should earn Mr Murdoch a lot of cash. As yet unknown, however, is just how far Mediaset wants to challenge him in the pay-TV business—and whether the Italian market is big enough to allow these two old friends to play together happily.